ISA-560 Subsequent Events PDF

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Summary

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Description

INTERNATIONAL STANDARD ON AUDITING 560 SUBSEQUENT EVENTS (Effective for audits of financial statements for periods beginning on or after December 15, 2009)

CONTENTS Paragraph Introduction Scope of this ISA ......................................................................................

1

Subsequent Events ....................................................................................

2

Effective Date ...........................................................................................

3

Objectives ................................................................................................

4

Definitions ................................................................................................

5

Requirements Events Occurring between the Date of the Financial Statements and the Date of the Auditor’s Report ........................................................

6−9

Facts Which Become Known to the Auditor after the Date of the Auditor’s Report but before the Date the Financial Statements are Issued ...........................................................................................

10−13

Facts Which Become Known to the Auditor after the Financial Statements Have Been Issued ............................................................

14−17

Application and Other Explanatory Material Scope of this ISA ......................................................................................

A1

Definitions ................................................................................................

A2−A5

Events Occurring between the Date of the Financial Statements and the Date of the Auditor’s Report .................................................

A6−A10

Facts Which Become Known to the Auditor after the Date of the Auditor’s Report but before the Date the Financial Statements are Issued ...........................................................................................

A11−A16

Facts Which Become Known to the Auditor after the Financial Statements Have Been Issued ............................................................

A17−A18

ISA 560

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AUDITING

International Standard on Auditing (ISA) 560, “Subsequent Events” should be read in conjunction with ISA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing.”

531

ISA 560

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Introduction Scope of this ISA 1.

This International Standard on Auditing (ISA) deals with the auditor’s responsibilities relating to subsequent events in an audit of financial statements. (Ref: Para. A1)

Subsequent Events 2.

Financial statements may be affected by certain events that occur after the date of the financial statements. Many financial reporting frameworks specifically refer to such events.1 Such financial reporting frameworks ordinarily identify two types of events: (a)

Those that provide evidence of conditions that existed at the date of the financial statements; and

(b)

Those that provide evidence of conditions that arose after the date of the financial statements.

ISA 700 explains that the date of the auditor’s report informs the reader that the auditor has considered the effect of events and transactions of which the auditor becomes aware and that occurred up to that date.2 Effective Date 3.

This ISA is effective for audits of financial statements for periods beginning on or after December 15, 2009.

Objectives 4.

1

2

The objectives of the auditor are: (a)

To obtain sufficient appropriate audit evidence about whether events occurring between the date of the financial statements and the date of the auditor’s report that require adjustment of, or disclosure in, the financial statements are appropriately reflected in those financial statements in accordance with the applicable financial reporting framework; and

(b)

To respond appropriately to facts that become known to the auditor after the date of the auditor’s report, that, had they been known to the auditor at that date, may have caused the auditor to amend the auditor’s report.

For example, International Accounting Standard (IAS) 10, “Events After the Reporting Period” deals with the treatment in financial statements of events, both favorable and unfavorable, that occur between the date of the financial statements (referred to as the “end of the reporting period” in the IAS) and the date when the financial statements are authorized for issue. ISA 700, “Forming an Opinion and Reporting on Financial Statements,” paragraph A38.

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Definitions 5.

For purposes of the ISAs, the following terms have the meanings attributed below: (a)

Date of the financial statements – The date of the end of the latest period covered by the financial statements.

(b)

Date of approval of the financial statements – The date on which all the statements that comprise the financial statements, including the related notes, have been prepared and those with the recognized authority have asserted that they have taken responsibility for those financial statements. (Ref: Para. A2)

(c)

Date of the auditor’s report – The date the auditor dates the report on the financial statements in accordance with ISA 700. (Ref: Para. A3)

(d)

Date the financial statements are issued – The date that the auditor’s report and audited financial statements are made available to third parties. (Ref: Para. A4–A5)

(e)

Subsequent events – Events occurring between the date of the financial statements and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report.

Requirements

6.

The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor’s report that require adjustment of, or disclosure in, the financial statements have been identified. The auditor is not, however, expected to perform additional audit procedures on matters to which previously applied audit procedures have provided satisfactory conclusions. (Ref: Para. A6)

7.

The auditor shall perform the procedures required by paragraph 6 so that they cover the period from the date of the financial statements to the date of the auditor’s report, or as near as practicable thereto. The auditor shall take into account the auditor’s risk assessment in determining the nature and extent of such audit procedures, which shall include the following: (Ref: Para. A7–A8) (a)

Obtaining an understanding of any procedures management has established to ensure that subsequent events are identified.

(b)

Inquiring of management and, where appropriate, those charged with governance as to whether any subsequent events have occurred which might affect the financial statements. (Ref: Para. A9) 533

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Events Occurring between the Date of the Financial Statements and the Date of the Auditor’s Report

SUBSEQUENT EVENTS

8.

(c)

Reading minutes, if any, of the meetings of the entity’s owners, management and those charged with governance that have been held after the date of the financial statements and inquiring about matters discussed at any such meetings for which minutes are not yet available. (Ref: Para. A10)

(d)

Reading the entity’s latest subsequent interim financial statements, if any.

If, as a result of the procedures performed as required by paragraphs 6 and 7, the auditor identifies events that require adjustment of, or disclosure in, the financial statements, the auditor shall determine whether each such event is appropriately reflected in those financial statements in accordance with the applicable financial reporting framework.

Written Representations 9.

The auditor shall request management and, where appropriate, those charged with governance, to provide a written representation in accordance with ISA 5803 that all events occurring subsequent to the date of the financial statements and for which the applicable financial reporting framework requires adjustment or disclosure have been adjusted or disclosed.

Facts Which Become Known to the Auditor after the Date of the Auditor’s Report but before the Date the Financial Statements Are Issued 10.

11.

The auditor has no obligation to perform any audit procedures regarding the financial statements after the date of the auditor’s report. However, if, after the date of the auditor’s report but before the date the financial statements are issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report, the auditor shall: (Ref: Para. A11) (a)

Discuss the matter with management and, where appropriate, those charged with governance;

(b)

Determine whether the financial statements need amendment and, if so,

(c)

Inquire how management intends to address the matter in the financial statements.

If management amends the financial statements, the auditor shall: (a)

Carry out the audit procedures necessary in the circumstances on the amendment.

(b)

Unless the circumstances in paragraph 12 apply: (i)

3

Extend the audit procedures referred to in paragraphs 6 and 7 to the date of the new auditor’s report; and

ISA 580, “Written Representations.”

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(ii)

13.

4

5

Where law, regulation or the financial reporting framework does not prohibit management from restricting the amendment of the financial statements to the effects of the subsequent event or events causing that amendment and those responsible for approving the financial statements are not prohibited from restricting their approval to that amendment, the auditor is permitted to restrict the audit procedures on subsequent events required in paragraph 11(b)(i) to that amendment. In such cases, the auditor shall either: (a)

Amend the auditor’s report to include an additional date restricted to that amendment that thereby indicates that the auditor’s procedures on subsequent events are restricted solely to the amendment of the financial statements described in the relevant note to the financial statements; or (Ref: Para. A12)

(b)

Provide a new or amended auditor’s report that includes a statement in an Emphasis of Matter paragraph4 or Other Matter paragraph that conveys that the auditor’s procedures on subsequent events are restricted solely to the amendment of the financial statements as described in the relevant note to the financial statements.

In some jurisdictions, management may not be required by law, regulation or the financial reporting framework to issue amended financial statements and, accordingly, the auditor need not provide an amended or new auditor’s report. However, if management does not amend the financial statements in circumstances where the auditor believes they need to be amended, then: (Ref: Para. A13–A14) (a)

If the auditor’s report has not yet been provided to the entity, the auditor shall modify the opinion as required by ISA 7055 and then provide the auditor’s report; or

(b)

If the auditor’s report has already been provided to the entity, the auditor shall notify management and, unless all of those charged with governance are involved in managing the entity, those charged with governance, not to issue the financial statements to third parties before the necessary amendments have been made. If the financial statements are nevertheless subsequently issued without the necessary amendments, the auditor shall take appropriate action to seek to prevent reliance on the auditor’s report. (Ref. Para: A15–A16)

See ISA 706, “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report.” ISA 705, “Modifications to the Opinion in the Independent Auditor’s Report.” 535

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12.

Provide a new auditor’s report on the amended financial statements. The new auditor’s report shall not be dated earlier than the date of approval of the amended financial statements.

SUBSEQUENT EVENTS

Facts Which Become Known to the Auditor after the Financial Statements Have Been Issued 14.

15.

After the financial statements have been issued, the auditor has no obligation to perform any audit procedures regarding such financial statements. However, if, after the financial statements have been issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report, the auditor shall: (a)

Discuss the matter with management and, where appropriate, those charged with governance;

(b)

Determine whether the financial statements need amendment; and, if so,

(c)

Inquire how management intends to address the matter in the financial statements.

If management amends the financial statements, the auditor shall: (Ref: Para. A17) (a)

Carry out the audit procedures necessary in the circumstances on the amendment.

(b)

Review the steps taken by management to ensure that anyone in receipt of the previously issued financial statements together with the auditor’s report thereon is informed of the situation.

(c)

Unless the circumstances in paragraph 12 apply:

(d)

(i)

Extend the audit procedures referred to in paragraphs 6 and 7 to the date of the new auditor’s report, and date the new auditor’s report no earlier than the date of approval of the amended financial statements; and

(ii)

Provide a new auditor’s report on the amended financial statements.

When the circumstances in paragraph 12 apply, amend the auditor’s report, or provide a new auditor’s report as required by paragraph 12.

16.

The auditor shall include in the new or amended auditor’s report an Emphasis of Matter paragraph or Other Matter paragraph referring to a note to the financial statements that more extensively discusses the reason for the amendment of the previously issued financial statements and to the earlier report provided by the auditor.

17.

If management does not take the necessary steps to ensure that anyone in receipt of the previously issued financial statements is informed of the situation and does not amend the financial statements in circumstances where the auditor believes they need to be amended, the auditor shall notify

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SUBSEQUENT EVENTS

management and, unless all of those charged with governance are involved in managing the entity,6 those charged with governance, that the auditor will seek to prevent future reliance on the auditor’s report. If, despite such notification, management or those charged with governance do not take these necessary steps, the auditor shall take appropriate action to seek to prevent reliance on the auditor’s report. (Ref: Para. A18)

*** Application and Other Explanatory Material Scope of this ISA (Ref: Para. 1) A1.

When the audited financial statements are included in other documents subsequent to the issuance of the financial statements, the auditor may have additional responsibilities relating to subsequent events that the auditor may need to consider, such as legal or regulatory requirements involving the offering of securities to the public in jurisdictions in which the securities are being offered. For example, the auditor may be required to perform additional audit procedures to the date of the final offering document. These procedures may include those referred to in paragraphs 6 and 7 performed up to a date at or near the effective date of the final offering document, and reading the offering document to assess whether the other information in the offering document is consistent with the financial information with which the auditor is associated.7

Definitions

A2.

6 7

In some jurisdictions, law or regulation identifies the individuals or bodies (for example, management or those charged with governance) that are responsible for concluding that all the statements that comprise the financial statements, including the related notes, have been prepared, and specifies the necessary approval process. In other jurisdictions, the approval process is not prescribed in law or regulation and the entity follows its own procedures in preparing and finalizing its financial statements in view of its management and governance structures. In some jurisdictions, final approval of the financial statements by shareholders is required. In these jurisdictions, final approval by shareholders is not necessary for the auditor to conclude that sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements has been obtained. The date of approval of the financial statements for purposes of the ISAs is the earlier date on which those with the recognized authority determine that all the

ISA 260, “Communication with Those Charged with Governance,” paragraph 13. See ISA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing,” paragraph 2. 537

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Date of Approval of the Financial Statements (Ref: Para. 5(b))

SUBSEQUENT EVENTS

statements that comprise the financial statements, including the related notes, have been prepared and that those with the recognized authority have asserted that they have taken responsibility for those financial statements. Date of the Auditor’s Report (Ref: Para. 5(c)) A3.

The auditor’s report cannot be dated earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the opinion on the financial statements, including evidence that all the statements that comprise the financial statements, including the related notes, have been prepared and that those with the recognized authority have asserted that they have taken responsibility for those financial statements.8 Consequently, the date of the auditor’s report cannot be earlier than the date of approval of the financial statements as defined in paragraph 5(b). A time period may elapse due to administrative issues between the date of the auditor’s report as defined in paragraph 5(c) and the date the auditor’s report is provided to the entity.

Date the Financial Statements Are Issued (Ref: Para. 5(d)) A4.

The date the financial statements are issued generally depends on the regulatory environment of the entity. In some circumstances, the date the financial statements...